The civil False Claims Act [1] (31 U.S.C. §§ 3729-3733), is the primary civil health care fraud enforcement tool utilized by the federal government. As discussed below, the False Claims Act is an extraordinarily useful statute for government prosecutors, both in terms of ease of use and in terms of the damages that may be recovered by the government. False Claims Act cases are prosecuted by the U.S. Department of Justice (DOJ), Civil Division in Washington, D.C. and by Assistant U.S. Attorneys (AUSAs) working out of the 94 U.S. Attorney’s Offices around the country. As discussed below, one of the more aspects of the False Claims Act is the fact that a whistleblower can essentially step into the shoes of the government and file a qui tam lawsuit against an individual or entity that has knowingly submitted a false claim to the government for payment.
At the outset, it is essential to keep in mind that the civil False Claims Act does not cover mistakes, accidents or mere negligence. Unfortunately, the line separating a billing “mistake” from an improper billing practice that could give rise to an action under the False Claims Act is not always easy to discern. In an effort to provide additional guidance to DOJ attorneys on the judicial use of the False Claims Act, the Department has issued guidance that set out a number of factors that may be considered when pursuing a False Claims Act case.
I. Overview of the History of the False Claims Act:
Sometimes referred to as “Lincoln’s Law,” the False Claims Act was first passed during the Civil War (1863) in response to war profiteers who were committing fraud in their dealings with the Union Army. The statute includes measures intended to encourage the disclosure of fraud by incentivizing private persons with knowledge of fraudulent conduct to file qui tam lawsuits on behalf of the government. The term qui tam is taken from a Latin phrase meaning “he who brings a case on behalf of our lord the King, as well as for himself,”[2] and under the qui tam (also commonly referred to as a “whistleblower”) provisions of the statute, a private person (known as a “relator”) may bring a False Claims Act lawsuit on behalf of, and in the name of, the United States and possibly share in any recovery made by the government.
Between government-initiated investigations and qui tam cases brought by whistleblowers, most companies who do business with the government have become well acquainted with the statute and its provisions. As set out in a January 2020 DOJ Press Release, during the previous fiscal year, DOJ secured more than $3 billion in civil settlements and judgments in connection with cases involving fraud against the government. Notably, $2.6 billion in recoveries were health care related. Since 1986, more than $62 billion has been recovered under the False Claims Act.
The number of new False Claim Act investigations has steadily increased over the years. During fiscal year 2019, whistleblowers filed 633 qui tam lawsuits. At least some of the increase is attributable to legislative changes to the False Claims Act under the Fraud Enforcement Recovery Act of 2009 (FERA) and the Affordable Care Act (ACA) in 2010, but qui tam lawsuits now account for the vast majority of all new health care investigations and legitimate concerns have been raised about the role of qui tams in DOJ’s overall health care fraud enforcement strategy. Notable guidance and legislative changes impacting the False Claims Act have included:
- 1986: False Claims Act Amendments of 1986. Prior to the passage of this Act, very few suits were brought pursuant to the False Claims Act. The Act made significant changes to the process including making it easier to make claims, increasing penalties from $2000 per claim to $10,000; increasing the percentage that a whistleblower may recover to as much as 30 percent of the recovered funds and retaliation claims to protect employees.
- 1998: Guidance on the Use of the False Claims Act. [3] In response to growing provider and Congressional concerns regarding alleged “overreaching” by Federal prosecutors in national initiative False Claims Act cases, the Deputy Attorney General Eric Holder issued clarifying guidance to all Federal prosecutors handling civil health care cases.
- 2009: Fraud Enforcement Recovery Act of 2009 (FERA). With the passage of FERA, the False Claims Act was amended and expanded so that the scope of “reverse false claims” liability was broadened. Under the updated statute, an “obligation” to the government was amended to specifically include the “retention of an overpayment” as a possible basis for a False Claims Act violation. FERA also altered the materiality requirement of the False Claims Act by legislatively overruling the Supreme Court opinion in Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008).
- 2010: Patient Protection and Affordable Care Act (Affordable Care Act). This legislation was set up to fundamentally change the way people are insured; goals include lowering healthcare costs and making coverage accessible to previously uninsured people. The law also contained a number of fraud enforcement provisions, several of which directly impacted the civil False Claims Act:
(1) Mandatory Compliance Plans. Requires Medicare and Medicaid providers to establish effective Compliance Plans.
(2) Requires that overpayments be reported and returned to the government within 60 days. [4] If not promptly reported and returned, the overpayment can be pursued as a violation of the False Claims Act.
(3) Civil Pursuit of Violations of the Criminal Anti-Kickback Statute. Allows violations of the criminal Anti-Kickback Statute to also be pursued as a violation of the civil False Claims Act.
(4) Changes to the Terms “Knowingly” and “Willfully Under the Anti- Kickback The ACA adding a provision which provides that neither “actual knowledge” of an Anti-Kickback Statute violation nor the “specific intent” to commit a violation of the Anti-Kickback Statute is necessary for a conviction under the statute. The government must still prove that a defendant intended to violate the law, but no longer has to prove the defendant intended to violate the Anti-Kickback Statute itself.
- 2018: Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A). Better known as the “Granston Memo,” this directive was issued on January 10, 2018, by Michael D. Granston, Director of DOJ’s Civil Litigation Branch, Fraud Section. Simply stated, the Granston Memo directs DOJ attorneys to seek dismissal, when appropriate, of a qui tam Complaint if it is factually deficient, either because the relator’s legal theory is inherently defective or the factual allegations set out in the Complaint are frivolous. The Granston Memo also notes that DOJ attorneys should consider moving to dismiss qui tam actions that merely duplicate a preexisting government investigation.
- 2018: Issuance of DOJ Memo Limiting the Use of Agency Guidance in Affirmative Enforcement Cases. On January 25, 2018, former Associate Attorney General, Rachel Brand issued guidance (referred to as the “Brand Memo”) further expanding on the principles covered in the Sessions Memo. The Brand Memo made it clear that the principles set out in the Attorney General’s directive should also be used by DOJ prosecutors when determining whether guidance documents issued by other federal agencies should be considered “binding” if the requirements set out in the guidance documents are not supported by existing statutes and / or regulations.
- 2019: Guidelines for Taking Disclosure, Cooperation and Remediation into Account in False Claims Act Matters. The DOJ issued guidelines setting out the factors that Federal prosecutors would take into consideration when entities and individuals voluntarily self-disclose conduct that may constitute liability under the False Claims Act. These guidelines are set out under Section 4-4.112 of the Justice Manual.[5]
II. Provisions of the False Claims Act:
The civil False Claims Act [6] imposes civil monetary penalties and exposes any person to civil liability under the circumstances below:
Sec. 3729. False claims
(a) Liability for Certain Acts—any person who:
(1) Knowingly presents or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
(2) Knowingly makes, uses or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) Conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;
(4) Has possession, custody or control of property or money used or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers or causes to be delivered, less property than the amount for which the person receives a certificate or receipt;
(5) Authorized to make or deliver a document certifying receipt of property used or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(6) Knowingly buys or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government or a member of the Armed Forces, who lawfully may not sell or pledge the property; or
(7) Knowingly makes, uses or causes to be made or used, a false record or statement to conceal, avoid or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government . .
III. Self-Disclosure of False Claims Act Violations:
The False Claims Act provides for a potential decrease in penalties and damages in cases where the person who violates the False Claims Act voluntarily discloses those violations to the government. In these cases, the person must:
(1) Provide the government with all information regarding the violation within 30 days of discovering the violation;
(2) Cooperate fully with any subsequent government investigation or inquiry; and
(3) Not be the subject of any criminal, civil or administrative inquiry related to the violation.
If a person complies with the requirements set forth above, then liability under the False Claims Act would be limited to twice the amount of damages sustained by the government
IV. Damages and Penalties Under the Statute:
A person found to have violated this statute may be liable for both civil penalties and treble damage. The amount of civil penalties that may be imposed for each false claim depends on when each was made:
- For claims made on or before October 23, 1996, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $5,000 and the maximum penalty is $10,000.
- For claims or statements made after October 23, 1996, but before August 1, 2016, the minimum penalty which may be assessed under 31 S.C. 3729 is $5,500 and the maximum penalty is $11,000.
- For claims or statements made on or after August 1, 2016, but before January 1, 2017, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $10,781 and the maximum penalty is $21,563.
- For claims or statement made on or after January 15, 2017, but before June 19, 2020, the new minimum was raised to $11,181 to the maximum penalty is raised to $22,363.
- For claims or statement made on or after June 19, 2020, the new minimum was raised to $11,665 and the maximum penalty was raised to $23,331.[7]
V. Statute of Limitations under the False Claims:
The False Claims Act’s statute of limitation provisions has been extensively litigated. As a result, it is important that you work with your legal counsel to determine if the claims at issue are likely to fall outside of the actionable period. Generally, the False Claims Act has a 6-year statute of limitations. However, this 6-year period may be tolled (under certain circumstances) up to a maximum of 10 years from when the government knew or reasonably should have known, that the violation occurred. The statute of limitations provisions are found in 31 U.S.C. § 3731(b):
(b) A civil action under section 3730 may not be brought —
(1) more than 6 years after the date on which the violation of section 3729 is committed, or
(2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last.
In assessing when the period of limitations runs, a court will look at the time at which either the relator or the government became aware or knew of the violation. Additionally, it is debatable whether a relator can avail himself of the three-year tolling provision or if only the government can take advantage of the three-year period.
VI. Counting Claims:
Over the years, there has also been considerable litigation has ensued regarding how claims are to be counted. While decisions vary, most courts have held that each submission constitutes a separate claim. Prior to the emergence of electronic filing, it was not uncommon for providers to bundle a set of claims together and send them in to their Medicare contractor for processing and payment. This “bundle” would likely constitute a single “claim” for purposes of the False Claims Act. Today, most providers send in individual claims as they are entered into the provider’s electronic billing system. As a result, each time that a provider hits “ENTER” to transmit a single claim to the contractor for processing and payment, this action would constitute a single claim for purposes of the statute. As one can easily imagine, even a small number of false claims could result in extensive civil penalties and damages.
VII. Qui Tam Lawsuit Considerations:
A unique aspect of the False Claims Act is that it authorizes and incentivizes private parties with direct knowledge of fraudulent conduct to file a civil lawsuit against the violator on behalf of the government. A private party who brings a qui tam lawsuit is known as a “relator.” A relators can receive a percentage of any monies recovered as a result of their qui tam lawsuit. This percentage can range from 15% to 30% of the amount of money recovered by the government.[8]
To initiate a qui tam lawsuit, a relator must first file a complaint – along with supporting documentation – “under seal” in federal court. When a qui tam lawsuit is filed under seal, the Clerk of the Court maintains all records associated with the whistleblower out of view and on a non-public docket. A copy of the complaint is given to the judge assigned to the case and he alone may grant access to filings in the matter. The complaint must also be served on the Attorney General in Washington, D.C. and on the U.S. Attorney in the Federal judicial district in which the case was filed. [9] During FY 2018, 645 qui tam (whistleblower) cases were filed. [10]
The government has a statutory obligation to investigate a relator's qui tam lawsuit. The government is automatically given 60 days to evaluate and investigate the allegations presented, during which time the qui tam lawsuit remains under seal. The government almost never completes its investigation in that time and the court may grant extensions of the time to investigate upon a showing of “good cause.” Most federal courts readily grant the request for an extension and keep the matter sealed during that period of time. It is not at all uncommon for a qui tam lawsuit to remain under seal for over a year (and often much longer) while the government investigates the allegations. Maintaining the seal is important for several reasons:
(1) The government can quietly investigate the allegations without the defendant knowing that their company is under investigation.
(2) The mere existence of a government investigation can negatively impact a company in the eye of the public – particularly if it is publicly traded – as the publicity surrounding a government investigation can severely affect the price of a company’s stock even if the allegations at issue are without merit or any factual basis.
(3) Maintaining the matter under seal also allows defendants that elect to resolve the matter by settlement to better manage the information that becomes publicly available as a result of the settlement and, in general, to take actions to minimize the impact of any settlement.
After concluding its evaluation, the government may elect to proceed with the complaint and intervene in the case or it may decline to intervene. If the government decides to intervene in the action, then the relator has the right to remain a party to the action. If the government decides not to intervene in the case, the qui tam relator may elect to proceed on his or her own against the defendant. Notably, the government always retains the ability to intervene in the case at a later time. From a practical standpoint, if the government decides not to intervene in a case, in all likelihood the relator will seek to dismiss the suit. Unlike the government, the relator’s ability to investigate a False Claims Act case is quite limited, both in terms of resources and in terms of investigative tools. As a result, the government’s decision to decline to intervene severely impacts a relator’s ability to move forward with the case.
The government often asks the court to partially lift the seal solely for the purpose of advising the defendant of the existence of the case. This typically happens when the government is mostly finished with its investigation and wants to hear the defendants “side to the story,” and it is seeking cooperation in resolving the allegations.
At the conclusion of its investigation, the government must choose to either legally “intervene” in the matter and take it over or to “decline” to take over the matter and give the relator a chance to pursue it on his own. In many, perhaps most, of the cases in which the government elects to intervene, the matter is resolved through settlement and the Court will look to the parties for guidance in removing the seal of the matter. For many years, relators only rarely pursued through litigation cases that had been declined by the government, however there has been some increase in recent years of the number of cases pursed by relators after declination. It is noted that if a relator pursues a declined case, he may receive 30% of the total recoveries in addition to attorney fees and any potential retaliation claim he might have. There are a number of limitations placed on the filing of qui tam cases. Two of the more commonly seen limitations include:
(1) When the government has already initiated an action against a party for the same allegations that would form the basis of a qui tam suit; or
(2) When the action is based on publicly-disclosed information that was contained in an official hearing, report, investigation, audit or information disseminated by the news.
False Claims Act recoveries resulting from whistleblower suits in health care matters routinely exceed $2 Billion annually. During Fiscal Year 2020, the government collected more than $3 billion under the False Claims Act.[11] As such, issues related to the False Claims Act should be at the top of the list of ongoing concerns for most health care practices and organizations. The potential damages a provider may face for violations of the False Claims Act cannot be understated.
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Liles Parker attorneys have negotiated numerous favorable resolutions in False Claims Act cases. Several of our attorneys held significant positions at DOJ. In fact, we are the only law firm in the country with two former Federal prosecutors who served as “National Health Care Fraud Coordinator” for the 94 U.S. Attorneys Offices around the country. We have the skills, knowledge and abilities to help you successfully traverse the complicated litigation and resolution process. Questions? For a free consultation, please give us a call: 1 (800) 475-1906.
[1] Criminal False Claims may be pursued under 18 U.S.C. § 287.
[2] False Claims Act Cases: Government Intervention in Qui Tam (Whistleblower) Suits, U.S. Department of Justice: www.justice.gov/usao/pae/Documents/fcaprocess2.pdf
[3] Notably, this guidance was drafted by Robert W. Liles while he served as National Health Care Fraud Coordinator for the Executive Office for U.S. Attorneys.
[4] As later discussed in the Final Rule titled “Medicare Program; Reporting and Returning of Overpayments,” 81 Fed. Reg. at 7654, 7662, a provider is expected to exercise “reasonable diligence” in its efforts to determine the size and scope of any overpayment that may be made. CMS noted that a provider can demonstrate that this requirement has been met “through the timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.”
[5] Section 4-4.112 of the Justice Manual can be found at: https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112
[6] 31 U.S.C. §§ 3729-3733. While our article focuses on the Federal False Claims Act, it is important to remember that at this time 31 states, the District of Columbia and some municipalities, also have laws similar to the Federal False Claims Act.
[7] 85 FR 119, 37004, 37005 (June 19, 2020). A copy of this Federal Register notice can be found at the following link: https://www.govinfo.gov/content/pkg/FR-2020-06-19/pdf/2020-10905.pdf
[8] Relators can receive between 15% and 25% of any recovery in a qui tam action where the government has intervened in the case. In a non-intervened case, a relator may recover up to 30%. Consequently, there is a tremendous financial incentive to file and pursue these types of actions.
[9] The relator must also serve a “disclosure statement” on DOJ (normally, it is provided to the U.S. Attorney’s Office) which sets out the evidence that the relator has in support of the allegations set out in his/her Complaint. This statement is not filed with the Complaint and is not given to the defendant.
[10] About 87% percent of all new FCA matters pursued against entities involved in the healthcare industry were brought by relators.
[11] During FY 2020, the federal government won or negotiated more than $3 billion in judgments and settlements under the False Claims Act. Of the $3 billion in settlements and judgments recovered by the Department of Justice this past fiscal year, $2.6 billion involved the health care industry.